Chapter 13

CHAPTER 13

THE SUPREME COURT AND THE COMMERCE CLAUSE AFTER 1937

"The people - the people - are the rightful masters of both congresses, and courts - not to overthrow the constitution, but to overthrow the men who pervert it." Abraham Lincoln, September 17, 1859.

After the Supreme Court's decision in the National Labor Relations Act cases and their subsequent decisions after 1937, we see that the Court in their expanded interpretation of the commerce clause, divided the commerce clause into three parts: (1) definition of commerce; (2) the distinction between interstate and intrastate commerce; (3) the jurisdiction of the national and the state governments over interstate commerce.

"COMMERCE" DEFINED

You should now be familiar as to the characteristics of interstate and intrastate commerce. As a way of review, let's again review what constituted commerce in the early history of our nation. In the early part of the Nineteenth Century, Chief Justice Marshall laid down the definition of commerce as:

"Commerce, undoubtedly, is traffic, but it is something more - it is intercourse."Footnote1

Following this declaration the Supreme Court consistently defined commerce as commercial intercourse.Footnote2 Then the Court narrowed its interpretation, and confined the meaning of intercourse as meaning only transportation. During this period of judicial decisions, the Court held that no commerce existed unless there was transportation. The Court then held that activities involving manufacturing and insurance was not commerce. On the other hand, the Court held that there was commerce if there was transportation, which included: sending of telegrams; transportation of electric current, transportation of persons; transportation of gas; transmission of radio messages by wireless, transportation of liquor across the state line for one's own use; a sale of tangibles for transportation.

However, the tendency of the Supreme Court in 1937, was to interpret commerce again in terms of traffic, and it was this broader conception that the National Labor Relations ActFootnote3 included in its definition of commerce.

INTERSTATE AND INTRASTATE COMMERCE DISTINGUISHED

Turning now to the difference between interstate commerce and intrastate commerce, it is difficult to lay down an arbitrary rule to determine the line of variance. However, prior to the Supreme Court decisions in 1937 a general definition of commerce existed. Several books on constitutional law defined commerce as:

"Commerce becomes interstate when it involves or concerns more states than one. Whenever there is traffic or commercial intercourse between a person in one state and a person in another state there is interstate commerce."Footnote4

In considering some of the cases in which the commerce involved has been declared to be interstate, it was found that interstate commerce exists in the following instances: the construction and maintenance of telegraph lines, the carrying of passengers by boat from one State to another; the activities of a correspondence school in writing and sending books to, and receiving letters and money from, persons in other States; the sale of electric current by a corporation in one State to a purchaser in another State and the transmission of current from one State to another, the sending of gas into a State through pipes and the sale of the gas to independent distributing companies; the regulation of the sending of lottery tickets from one State to another; the processes involved in the transmission and transcription of stock quotations from the Stock Exchange to buyers through the "ticker service", aviation; radio; the sending of goods in the original package; the installation and test of machinery sold in interstate commerce when such installation and test is part of the contract of sale; a ship moving on a navigable river, even though operating exclusively within one State; the sending of a telegram message through two or more States even though the point of sending and receiving are in the same State; an article which is on its way from one State to another, although it is delayed in one State to prevent its destruction; a sale or purchase of goods for transportation from one State to another; the carrying of a sack of bolts by a railroad employee to be used immediately in the repairing of a bridge used in interstate transportation; a watchman flagging at a crossing of trains which were engaged in both interstate and intrastate carriage.

Looking away from interstate commerce, intrastate commerce has been held to be present in these factual situations; a company which stores goods received in foreign or interstate commerce, later transports the goods within the State; a baseball league composed of clubs of different States which travel to play in various States; a corporation which supplies lists of attorneys in several States who engage in the collection business; a person who hires laborers to be employed in other States; an employee who adjusts machinery to be used in the repair of trains which operate in both interstate and intrastate commerce; a cab company which engages in taking passengers to and from a ferry and is not employed in further transportation; the transmission of gas from one State to another where, after going into the State, it was changed to different pipes and pressure adjusted.

It has been noted above that there are decisions holding that manufacture and production are not even commerce. However, in 1937, there was an apparent change of view by the Supreme Court in calling such activity intrinsically intrastate commerce, at least; and when it is a burden on interstate commerce, it is within the jurisdiction of Congress. In the National Labor Relations Act cases, the act was within the jurisdiction of Congress. In the National Labor Relations Act cases, the act was applied in each instance to employees in the production end of business. The dissenting view in these cases emphasized this fact; and, in urging the unconstitutionality of the act, laid great stress upon the decisions stating that manufacturing is not commerce.Footnote5 The line of cases definitely asserting that manufacturing is not commerce begins with Kidd v. Pearson,Footnote6 in which it is stated, "No distinction is more popular to the common mind, or more clearly expressed in economic and political literature than that between manufacture and commerce." The opinion continues to explain of what the Court believes the distinction to consist. In United States v. KnightFootnote7 is the statement: "Commerce succeeds to manufacture and is not a part of it." Capital City Dairy Company v. OhioFootnote8 follows the same view. Similar, too, is the holding in the United Mine Workers v. Coronado Coal Company.Footnote9

The majority in the National Labor Relations Act cases, on the other hand, refer to cases apparently overruling these earlier decisions and proceeded on such a basis in arriving at their own decision. The holding in Standard Oil Company v. United StatesFootnote10 is principally relied on by the majority as definitely overruling the Knight case. The argument in the Standard Oil case by the petitioners, as stated by the Court, was:

"That the acts, even if the averments of the bill be true, cannot be constitutionally applied, because to do so would extend the power of Congress to subject dehors the reach of its authority to regulate commerce, by enabling that body to deal with mere questions of production of commodities within the States."Footnote11

The Court disposed of this argument in the following words:

"But all the structure upon which this argument proceeds is based on the decision in the United States v. E. C. Knight Co., supra. The view however, which the argument takes of that case and the arguments based upon that view have been so repeatedly pressed on this court in connection with the interpretation and enforcement of the Anti-Trust Act, and have been so necessarily and expressly decided to be unsound as to cause the contentions to be plainly foreclosed and to require no express notice."Footnote12

Nor are these statements unique, for there are cases leading up to and supplying a foundation for the holding just quoted. Thus the majority opinion proceeded upon the basis that manufacturing, though not in and of itself interstate commerce, is at least intrastate commerce.

JURISDICTION OVER INTERSTATE AND INTRASTATE COMMERCE.

Having thus reviewed the conception of what commerce was prior to the National Labor Relations Act cases, and having seen generally what kinds of commerce are interstate and what kinds are intrastate in nature, it becomes pertinent again to review what is the jurisdiction of the national and the state governments over interstate and intrastate commerce. Dealing first with jurisdiction over interstate commerce, it is obvious that great confusion reigned in this field in the 1930's in determining when the national, and when the local, governments should regulate commerce. In trying to find some guide, it is necessary to begin with the earlier decisions and trace the concept through succeeding cases.

The rule first laid down was that the States shall regulate all commerce, interstate and intrastate, until Congress enacts legislation on the subject, at which time Congress' legislation will supersede such State law as is contrary.Footnote13

Then, in Wabash v. Illinois,Footnote14 the precept stated was that there is a field of interstate commerce which is national in nature, in which the States could not legislate at all. It was Cooley v. Board of Wardens of PhiladelphiaFootnote15 which definitely established a line of jurisdictional distinction between local and national regulation. In that case, Mr. Justice Curtis said that there are two kinds of interstate commerce; the one local in nature, in which field the States can regulate until Congress steps in with contrary regulations, the other is national in character, and in this field, the power of Congress is exclusive, so that even though Congress has not regulated, the States are prohibited from action. To qualify this doctrine, the decision in In Re RahrerFootnote16 developed the theory that, by its silence, Congress had prohibited state action in the national field, but that Congress could remove that impediment of silence by affirmatively giving the State power so to regulate.

There are certain additional powers and restrictions on congressional action which should be noted. In the first place, Congress is restricted from going beyond the enumerated powers and interfering with the state police powers; and further, Congress may not only regulate certain kinds of commerce, but has the additional power to exclude certain articles from interstate and foreign commerce.

Having examined the jurisdiction of Congress and the States over interstate commerce, it is logical to examine the field of intrastate commerce and observe the jurisdiction of Congress and the States in this regard. Briefly noting the powers and limitations of the States over intrastate commerce, it was held prior to 1937 that the States had power to give their own citizens preference in the consumption of natural resources; that a State could not forbid a foreign corporation to use local courts in cases of interstate transactions, although it may forbid the use of the courts for intrastate business; that a State was limited in its power of taxation which affected interstate commerce.

It now is relevant to discuss the power of Congress over intrastate commerce, which power arises in two general situations: (1) when the goods constituting intrastate goods are in the "stream of commerce," and (2) when intrastate goods are a burden on interstate commerce. It was primarily upon the power of Congress in these two situations that the Supreme Court relied in upholding the National Labor Relations Act as being a proper subject of congressional legislation. It was on these bases that the Supreme Court distinguished the National Labor Relations Act cases and took them out of the prohibition as to goods in the process of production or manufacture. For, as was mentioned before, later cases held that manufacturing was commerce, even though only intrastate commerce. But in order to take manufacturing out of the sphere of the State's control, it had to be shown that this intrastate commerce was either in the "stream of commerce" or was a burden on interstate commerce.

The theory as to the "stream of commerce" was promulgated in Stafford v. Wallace,Footnote17 in which the Supreme Court upheld the Packers and Stockyards Act. Said the Court:

"The stockyards are but a throat through which the current flows and the transactions which occur therein are only incident to this current from the west to the east and from one state to another."Footnote18

In applying the theory of the "stream of commerce" to the cases under the National Labor Relations Act, the Court (speaking in the Jones-Laughlin case) quoted the finding of the Labor Board that the various parts of the Steel company's enterprise was:

"a great movement of iron ore, coal and limestone along well-defined paths to the steel mills, thence through them, in the form of steel products into the consuming centers of the country-a definite and well-understood course of business."Footnote19

The Court said that:

"These activities constitute a 'stream' or 'flow' of commerce, of which the Aliquippa manufacturing plant is the focal point, and that industrial strife at that point would cripple the entire movement."Footnote20

The dissenting opinion objected to classifying "in the stream of commerce" such activity as was involved in the Jones-Laughlin case, and relied principally upon the Arkadelphia caseFootnote21 to rebut the majority's argument. In that case it was held that when goods are "subjected to a manufacturing process that materially changed its character, utility and value" the movement from the place of manufacture can not be held to be interstate commerce.

Although there is a possible ground of distinction between the Arkadelphia case and the instant cases, the majority opinion made no direct reply to these objections to the stream of commerce theory, but said:

"We do not find it necessary to determine whether these features of the defendant's business dispose of the asserted analogy to the 'stream of commerce' cases. The instances in which that metaphor has been used are but particular and not exclusive illustrations of the protective power which the government invokes in support of the present Act. The congressional authority to protect interstate commerce from burdens and obstructions is not limited to transactions which can be deemed to be an essential part of a 'flow' of interstate or foreign commerce."Footnote22

The power of Congress to control and regulate that which burdens and obstructs interstate commerce, to which the Court refers, is a well-established one. And, as brought out before, it is the second basis of Congress' power to regulate intrastate commerce. This power is defined in the Stafford caseFootnote23 as follows:

"Whatever amounts to more or less constant practice, and threatens to obstruct or unduly to burden the freedom of interstate commerce is within the regulatory power of Congress under the commerce clause and it is primarily for Congress to consider and decide the facts of danger and meet it."Footnote24

Of particular interest is the reliance of the Supreme Court upon the decisions under the Sherman Anti-Trust Act to prove the right of Congress to regulate labor relations of employees engaged in manufacture. There, a series of decisions established the point that interference with, or disruption of, manufacturing and productive processes had a direct effect on interstate commerce. The irony in the use of these cases is that the original result of these decisions was to give power to restrain union strike activities on the part of employees. Now the same decisions were used to uphold the National Labor Relations Act and to restrain the employers from interfering with the union activities of the employees. But there is no denying that the opinion in the Anti-Trust cases definitely established that strikes in the production or manufacturing end of business would affect interstate commerce. Thus the majority opinion in the National Labor Relations Act cases reasoned that, if the employer interfered with the union activities of his employees, and refused to bargain collectively with them, a discord may result which our national history has shown was a fruitful source of labor disputes and strikes; that strikes were a direct burden on interstate commerce, even though they occur in production; that Congress can act to prevent such a burden; therefore, Congress can act at the source of the evil and eliminate strikes by regulating the conditions which give rise to strikes.

But having reached this conclusion, the Court was confronted with the necessity of reconciling this decision with that in the Carter Coal case,Footnote25 and in the Schechter case.Footnote26 For, in these instances, Congress attempted to regulate labor relations in some phase of industry. And in all these instances, the basis for such attempted regulation was that of relieving interstate commerce of a burden. Although differently applied, the argument in each of the National Labor Relations Act cases was that labor disputes result in a burden on interstate commerce and that, to relieve that burden, regulation of labor relations was essential under the congressional power over interstate commerce. Yet in the Schechter case, in which Chief Justice Hughes wrote the majority opinion, and in the Carter case, in which the Chief Justice wrote a concurring opinion, it was held, in no uncertain language, that labor disputes are too remote from, and do not constitute a burden on, interstate commerce. However, in the National Labor Relations Act cases, in which the Chief Justice wrote the majority opinion, it was held, in just as certain language, that labor disputes do constitute a burden on interstate commerce and that Congress does have power to regulate the same. A closer examination of these cases clearly reveals the conflicting views.

The Schechter case came up under the National Industrial Recovery Act code of fair competition regulating the poultry business in New York. The government argued in this case that labor disputes resulted in a burden on interstate commerce in this way: that long hours and low wages of employees resulted in low production costs, which in turn resulted in low prices and a demoralized price structure, which is a burden on interstate commerce. However, Chief Justice Hughes, speaking for the Court, held that this regulation of hours and wages was too remote and speculative and did not have a sufficiently direct effect on interstate commerce to be justified. The dissent in the National Labor Relations Act cases urged that, based on the Schechter case, these cases should also be decided to be outside the scope of the interstate commerce clause. And, in fact, there is some force to the argument that the labor activities involved in the National Labor Relations Act cases are just as remote from interstate commerce as those in the Schechter case. But Chief Justice Hughes, in the Jones-Laughlin case stated:

"The question remains as to the effect upon interstate commerce of the labor practice involved. In the A.L.A. Schechter Poultry Corporation case, we found that the effect there was so remote as to be beyond Federal power."Footnote27

Yet in the National Labor Relations Act cases, the majority opinion held that the effect upon interstate commerce was not remote.

But if the Schechter case seems difficult to distinguish, the Carter case is even more difficult to distinguish. The latter case came up as a result of the Bituminous Coal Conservation Act of 1935.Footnote28 This act stated that mining and the distribution of coal was affected with a national public interest and that regulation was necessary because interstate commerce was directly and detrimentally affected by the state of the industry and its labor prices; and that the right of miners to organize and collectively bargain for wages, hours of labor and working conditions should be guaranteed in order to prevent constant wage cutting and unequal labor costs and in order to prevent the obstructions to commerce which arise from disputes over labor relations at the mines. The Act then provided a plan for regulating price, wages, hours and working conditions. The Court held the act unconstitutional because; (1) it did not come under the power of Congress to regulate commerce, and (2) it violated the due process clause.

In holding that this regulation did not come under the interstate commerce clause, Mr. Justice Sutherland, who wrote the majority opinion, stated:

"Much stress is put upon evils which come from the struggle between employers and employees over matter of wages, working conditions, the right of collective bargaining, etc., and the resulting strikes, curtailment and irregularity of production and the effect on prices, and it is insisted that interstate commerce is greatly affected thereby. But in addition to what has been said, the conclusive answer is that the evils are all local evils over which the federal government has no legislative control. The relation of employer and employee is a local relation. The employees are not engaged in or about commerce, but exclusively in producing a commodity. And the controversies and evils, which it is the subject of the act to regulate and minimize, are local controversies and evils affecting local work undertaken to accomplish that local result. Such effect as they may have upon commerce, however extensive it may be, is secondary and indirect. An increase in the greatness of the effect adds to its importance, it does not alter its character."Footnote29

Such a statement would seem to definitely establish the Court's attitude that there is no sufficient relation between labor conditions and interstate commerce to allow national regulation. Chief Justice Hughes further expresses this view in a separate concurring opinion in which he said:

"If the people desire to give Congress the power to regulate industries within the state and the relations of employers and employees in those industries, they are at liberty to declare their will in the appropriate manner, but it is not for this Court to amend the Constitution by judicial decision."Footnote30

Yet the same Chief Justice stated in the Jones-Laughlin case that:

"When industries organize themselves on a national scale, making their relation to interstate commerce the dominant factor in their activities, how can it be maintained that their industrial labor relations constitute a forbidden field into which Congress may not enter, when it is necessary to protect interstate commerce from the paralyzing consequences of industrial war?"Footnote31

To reconcile the two points of view by Chief Justice Hughes seems impossible. The only effort in the Jones-Laughlin case to reconcile that decision with that of the Carter case is the statement:

"In the Carter case the Court was of the opinion that the provisions of the statute relating to production were invalid upon several grounds - that there was an improper delegation of legislative power, and that the requirements not only went beyond any sustainable measure of protection of interstate commerce, but were also inconsistent with due process."Footnote32

And referring to both the Carter and the Schechter cases, Chief Justice Hughes said: "These cases are not controlling here." To dismiss thus summarily the Carter case as being inapplicable because it was held unconstitutional also on the basis of due process and improper delegation is entirely unsatisfactory. The inference might be made that the National Labor Relation Act cases overrule the Carter case in the interpretation of the commerce clause, but, since no direct overruling can be found, it seems that the Supreme Court was left free to follow either case.Footnote33 Therefore, whether the Supreme Court in the future will refuse, as in the Jones-Laughlin case "to shut its eyes to the plainest facts of our national life and to deal with the question of direct and indirect effect in an intellectual vacuum," and consequently take a more liberal view in finding labor relations to have a direct effect on interstate commerce; or whether the Court will follow the reasoning of the Carter and Schechter cases, can only depend on the status of the parties involved.

Footnote1

Gibbons v. Ogden, 9 Wheat. 5 (1824).

Footnote2

Pennsylvania v. Wheeling & Belmont Bridge Co., 59 U.S. 421 (1851).

Footnote3

Act of July 5, 1935, c. 372, 49 Stat. 449.

Footnote4

WILLIS, CONSTITUTIONAL LAW OF THE UNITED STATES, p. 289 (1936).

Footnote5

NLRB v. Jones and Laughlin Steel, 301 U.S. 1, 85 (1937).

Footnote6

128 U.S. 1 (1888).